Investors are flocking to fund social networking startups. How can you identify a good investment? Here are five key characteristics, backed up with real-world examples.
Facebook and Twitter are great examples. Users are drawn to these networks by the promise of enhanced communication with friends.
2. Enable users' narcissism and vanity Many people, especially 18 to 25 year olds, entertain the conceit that they are unique and interesting. A compelling social network lets users construct an idealized self out of random thoughts, iPod playlists, lip-synching videos or drunken party photos, and then invites others (especially their friends) to endorse this conceit.
Facebook, Twitter, and YouTube exemplify the narcissism/vanity characteristic. Facebook lets users construct paeans to their own good taste. Twitter provides a public billboard for users' interior monologues. And Google spends millions of dollars on data storage to preserve a flood of home-made comedy sketches, skateboarding tricks, and confessionals.
3. Enable users' voyeurism The flip side of the human compulsion to gaze into the mirror is the desire to peek into windows. A successful social networking sites remove the physical barriers and social conventions that otherwise discourage our ability to sift through other people's lives.
It's telling that neither Twitter nor YouTube require visitors to register -- the unfettered ability to troll through posts keeps users coming back. Facebook, while providing some control over who is allowed to join your network, lets you see who is in your friends' network.
4. Enable user judgments Following closely on points 2 and 3, people love to evaluate, criticize, and pass judgment on others. In addition to satisfying this urge, social networking sites also can classify and tally judgments to help direct others to the most popular -- or most reviled -- content on the site.
YouTube and Twitter exemplify the judgment characteristic. YouTube members don't hesitate to write "You suck" in the comments section. Twitter's "Followers" tally serves as a crude indicator of a person's status within the community.
5. Enable expansion Once your friends are in your network, it's time to branch out and meet new people. Users will broaden their connections around common points such as shared interests or geographic proximity.
Facebook and Twitter exemplify the expansion characteristic. Facebook makes it easy to add friends, while Twitter continuously exposes users to new posters and lets users follow each other.
Investors should look for companies that have at least a couple of these characteristics. More important, they need to invest in originality. Facebook already exists, and there's little to be gained from applying its basic structure to niche audiences (it's like Facebook for cat lovers!). Of course, finding originality is the hard part.
*The exception to the friends characteristic are groups that coalesce around profound experiences, such as pregnancy and childbirth or a cancer diagnosis. These groups form expressly to connect with strangers who are sharing the same experience. However, other characteristics certainly apply.